Insurance contracts are written in a dialect that exists mostly to describe insurance contracts. These are the 63 terms that come up most often when people compare participating whole life and Indexed Universal Life, defined the way we would explain them across a table. 16 apply only to whole life, 23 only to IUL, and the rest to both. For how the two policies compare, see Whole Life vs. IUL.

Showing all 63 terms

A – C

1035 ExchangeBoth: An exchange of one life insurance policy for another, or for an annuity, that under IRC 1035 doesn’t trigger tax on the gain. (An annuity can’t be exchanged into life insurance this way.) It can move you to a better-suited contract, but surrender charges on the old policy may still apply, the new policy starts its own charges and contestability period, and an outstanding loan on the old policy can be taxable if it isn’t carried over.
Accelerated Death Benefit RiderBoth: A provision allowing you to draw part of the death benefit while living if you meet defined conditions, typically terminal or chronic illness.
Account ValueIUL: The gross value of your policy before any surrender charge is applied. Distinct from cash surrender value, which is what you would actually receive on exit.
Annual Point-to-PointIUL: The most common crediting method. Compares the index value on your policy anniversary to its value one year earlier, ignoring everything that happened in between.
Annual ResetIUL: The mechanic by which each crediting period starts fresh from wherever the index closed. Combined with a floor, it means a down year doesn’t have to be made back.
Automatic Premium LoanWhole life: A provision that pays a missed premium with a policy loan against cash value. It keeps the policy in force, but the loan balance and its interest grow, and unpaid loans reduce the death benefit.
Banking ConceptWhole life: Using a well-funded participating whole life policy as a pool of cash value you can borrow against for large purchases, opportunities, or emergencies; often called infinite banking. The insurer makes each loan and charges interest, paid to the insurer. Repaying restores what you can borrow next time. Our version is the Banking Action Plan.
Base PremiumWhole life: The fixed premium for the whole life policy itself, before any paid-up additions rider payments. It’s due every year of the premium-paying period.
Cap RateIUL: The maximum crediting percentage for a period. Index gains above the cap are not credited. The insurer sets the cap and can change it within contract limits.
Cash Surrender ValueBoth: What you would receive if you ended the policy today: the cash value minus any surrender charge and any outstanding loan.
Contestability PeriodBoth: Typically the first two years, during which the insurer may investigate and deny a claim for a material misstatement on the application.
CorridorBoth: The minimum gap federal tax law requires between cash value and death benefit. It narrows as you age, and it is why the death benefit sometimes rises automatically.
Cost BasisBoth: Generally, the total premiums you have paid into the policy, less anything already received tax-free. Under current tax law, withdrawals up to basis are generally not taxed as income, unless the policy is a MEC.
Cost of Insurance (COI)IUL: The recurring charge for the death benefit, priced per thousand dollars of net amount at risk. Rises with age, up to the contract maximum.
Crediting StrategyIUL: The specific formula — index, term, cap, participation rate, spread — determining how your indexed account is credited.

D – I

Death Benefit Option A (Level)IUL: The death benefit stays at the face amount, so cash value growth shrinks the net amount at risk and reduces ongoing cost.
Death Benefit Option B (Increasing)IUL: The death benefit equals the face amount plus cash value. Costs more but permits higher premium under MEC limits during funding years.
Direct RecognitionWhole life: A way some carriers figure dividends when a loan is outstanding: the dividend on the borrowed portion of cash value is adjusted, up or down, based on the loan rate. Dividends aren’t guaranteed either way, and neither this method nor non-direct recognition is better in every case.
DividendWhole life: A payment a participating whole life policy is eligible for each year. The insurer decides whether to pay one and how much, based on the company’s results. Dividends aren’t guaranteed and can be reduced or skipped, but many participating carriers have paid dividends every year for decades.
Dividend OptionsWhole life: What you can do with a dividend: take it in cash, lower the premium, leave it with the insurer to earn interest, or buy paid-up additions; some policies also let it repay a loan. Interest earned on dividends left with the insurer is taxable each year.
Dividend ScaleWhole life: The rates and formula an insurer uses to set dividends for a given year. An illustration shows values on the current scale next to guaranteed values. The scale isn’t guaranteed and will likely differ from what’s shown.
Extended Term InsuranceWhole life: A non-forfeiture option that uses the cash value to buy term insurance for the same death benefit, for as long as the cash value can pay for it.
Face AmountBoth: The base death benefit stated in the contract, before any increase from paid-up additions, an option B design, or a rider.
Fixed AccountIUL: The non-indexed bucket inside the policy, crediting a declared interest rate. Often where loan collateral is held under a standard loan.
Floor RateIUL: The minimum crediting rate for a period, typically 0%. Index credits never go below it, but policy charges still come out, so cash value can decline in a 0% year.
Free Look PeriodBoth: A window after delivery, usually 10 to 30 days depending on state, during which you may return the policy for a full refund.
Grace PeriodBoth: A window, often 31 days or more, after a premium is missed (whole life) or after cash value can no longer cover charges (IUL), during which you can pay to keep the policy in force.
Guaranteed Cash ValueWhole life: The cash value schedule written into a whole life contract, as long as premiums are paid when due. Guarantees are backed by the claims-paying ability of the insurer. For many years it is usually less than the premiums you’ve paid; growth beyond it comes from dividends, which aren’t guaranteed.
Guaranteed ElementsBoth: The contractual worst case: on IUL, the minimum crediting rate, maximum charges, and maximum loan rate; on whole life, the premium, the base death benefit, and the guaranteed cash value schedule. The only part of an illustration the insurer is obligated to honor.
Illustrated RateIUL: The hypothetical crediting rate used to project non-guaranteed values. Subject to regulatory maximums and not a prediction.
In-Force IllustrationBoth: A projection generated from your policy’s actual current values rather than from original assumptions. Usually free on request, and the core document of an annual review.
Indexed AccountIUL: The portion of cash value allocated to an index crediting strategy rather than the fixed account.
Indexed Universal Life (IUL)IUL: Permanent life insurance with flexible premiums where cash value is credited based on the movement of an index, subject to a floor and a cap, participation rate or spread. Our retirement framework built on it is My New Retirement.

L – P

LapseBoth: The policy ending because premiums weren’t paid (whole life) or its value couldn’t cover charges (IUL). A lapse with an outstanding loan can make the gain taxable.
Limited-Pay Whole LifeWhole life: Whole life with premiums due for a set number of years, such as 10 or 20, or to a set age. Premiums are higher than on a policy paid to an advanced age, and the policy is paid up when they end.
Loan Interest RateBoth: The rate the insurer charges on policy loans, paid to the insurer. May be fixed or variable, depending on the contract.
Loan ValueBoth: The most you can borrow against the policy at a given time, as the contract sets it. Usually somewhat less than the cash value, so the loan and its interest stay covered.
Modified Endowment Contract (MEC)Both: A policy funded faster than federal limits permit. It keeps its death benefit but loses favorable tax treatment of money taken out: loans and withdrawals become taxable gain-first and may carry a 10% penalty before 59½.
Net Amount at RiskBoth: Death benefit minus cash value — the insurer’s actual exposure, and the base on which IUL cost of insurance is charged.
Non-Direct RecognitionWhole life: A way some carriers figure dividends: the dividend is the same whether or not you have a loan outstanding. Loan interest still accrues, dividends aren’t guaranteed, and neither this method nor direct recognition is better in every case.
Non-Forfeiture OptionsWhole life: What a whole life policy offers if you stop paying premiums: take the cash surrender value, convert to reduced paid-up insurance, or switch to extended term insurance. Which one applies by default depends on the contract.
Overloan Protection RiderBoth: On policies that offer it, a provision that, when its conditions are met, keeps a heavily loaned policy from lapsing by converting it to a reduced death benefit, which is intended to avoid the tax a lapse would trigger. The IRS hasn’t ruled on the tax result of exercising one. Terms and costs vary by carrier.
Paid-Up AdditionsWhole life: Small blocks of fully paid insurance bought with dividends or with extra premium through a rider. Each one adds to both the death benefit and the cash value. An addition’s cash value is guaranteed once it is purchased; additions bought with future dividends are not.
Paid-Up Additions RiderWhole life: A rider that lets you pay extra premium to buy paid-up additions directly, within limits the insurer sets. Rider payments can carry a charge, so not every dollar becomes cash value, and they count toward the federal limits that keep a policy from becoming a MEC.
Participating LoanIUL: An IUL loan design in which the cash value securing the loan keeps receiving index credits while loan interest accrues. The net result depends on the spread: positive in strong years, negative in a 0% year. Also called an indexed or variable loan.
Participating Whole LifeWhole life: Permanent life insurance with a fixed premium, a death benefit, and cash value that grows on a guaranteed schedule, as long as premiums are paid. “Participating” means it is eligible for dividends, which aren’t guaranteed. Our frameworks built on it are the Banking Action Plan and the Debt Action Plan.
Participation RateIUL: The percentage of the index move passed through before the cap is applied. A 60% participation rate on a 10% index year credits 6%. The insurer sets it and can change it within contract limits.
Per-Thousand ChargeIUL: A monthly charge based on the death benefit, expressed per thousand dollars of face amount. Often limited to the first ten policy years.
Policy FeeIUL: A flat monthly administrative charge that continues regardless of whether premium is being paid.
Policy LoanBoth: Borrowing from the insurer with your cash value as collateral, with no credit check. The loan charges interest, paid to the insurer, and unpaid loans reduce the death benefit. Under current tax law, a loan is generally not taxable income while the policy stays in force and is not a MEC.
Premium LoadIUL: A percentage deducted from each premium payment before it reaches account value, covering premium tax and acquisition cost.
Premium-Paying PeriodWhole life: How long whole life premiums are due: to an advanced age such as 100 on some designs, or a set number of years on a limited-pay design.

R – Z

Rate ClassBoth: Your underwriting classification — preferred, standard, substandard, tobacco — which the insurer uses to set your insurance rates. The class generally doesn’t change after issue.
Reduced Paid-UpBoth: A non-forfeiture option converting the policy to a smaller, fully paid-up death benefit with no further premiums due.
RiderBoth: An optional provision added to a policy for additional benefit, usually at additional cost.
Seven-Pay TestBoth: The federal test governing how fast a policy can be funded in its first seven years. Failing it makes the contract a MEC.
SpreadIUL: A flat percentage subtracted from the index return before crediting. The standard mechanism behind uncapped strategies. Also called a hurdle or threshold. The insurer sets it and can change it within contract limits.
Surrender ChargeIUL: A declining charge for ending the policy in its early years, allowing the insurer to recover acquisition costs. Typically reaches zero in 10 to 15 years.
Target PremiumIUL: The insurer’s reference premium level, used primarily to calculate agent compensation. Not a measure of what the policy needs to perform.
Term RiderBoth: Term insurance attached to a permanent policy. In cash value designs it can raise the death benefit enough to permit more premium within MEC limits, at a lower cost than base coverage.
Volatility-Controlled IndexIUL: A proprietary index targeting a fixed volatility level by shifting between equity and cash or bonds. Cheaper to hedge, which supports higher participation rates, but dampens upside and may carry internal fees.
Wash LoanIUL: A loan design where the interest charged and the rate credited on the loaned cash value are set to be equal or nearly equal. Both rates are set by the insurer within contract limits and can differ from what an illustration assumes.
Withdrawal (Partial Surrender)Both: Permanently taking money out of the policy. Under current tax law, a withdrawal is generally not taxed as income up to cost basis unless the policy is a MEC, and is taxable beyond it. In the first 15 policy years, a withdrawal that comes with a reduction in the death benefit can be partly taxable even below basis (IRC 7702(f)(7)). It permanently reduces the death benefit.

Still stuck on a term you saw in a contract or on an illustration? Send it to us and we’ll explain it in plain language, whether or not you are a client.

The Plain-English Life Insurance Glossary

A – C

D – I

L – P

R – Z

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